What type of credit card should you use?

There is a huge range of credit cards available and it is important to choose the one that is right for you. We're taking a look at the different kinds of cards, and their pros and cons, to help you can clarify which will fit you best.

Cards with low-interest rates

If you need some help with cash flow but are good at managing your money then a card with a long period of interest-free spending might suit you. For example, Tesco bank doesn’t start charging interest until 51 days after you make a purchase. If you don’t pay the amount off in full at the end of this period, it charges an APR of 5.9%.

The AA has a low rate MasterCard credit card which has an interest free period of 56 days—nearly two months—and an APR of 6.4%.

Top tip: Decide whether you need a long interest-free period or a low APR as that will determine which card you should choose.

Reward card

If you are able to pay off your credit card balance every month you won’t need to worry too much about the interest rate (known as the Annual Percentage Rate or APR) on your card. Instead, you can choose a card that offers perks or cashback.

Some cards, like the Santander 123 Credit card offer generous cash back deals—3% cashback on fuel/train fares spend up to £100, and 1% on supermarket spend up to £300 with 2% on department store spend up to £150. However, there is a £3 monthly fee for the card, so you need to have a look at your card spending to work out whether you will benefit from this deal.

The American Express Platinum Cashback Everyday Card pays 5% cashback for the first three months, capped at £100. Bear in mind that some online retailers will charge you a fee for using an American Express card to make a booking or purchase.

Top tip: Check whether the reward card has an annual or monthly fee, and whether the amount of cashback you can earn is capped.

Balance transfer card

If you have debt on a credit card which has a high-interest rate (APR) or you are struggling to keep up with monthly payments, then you can give yourself some breathing space by moving your debt to a card with no interest.

With a balance transfer card, you could have an interest-free period of up to 41 months. Halifax and MBNA offer 41 months, with Virgin and Bank of Scotland offer 40 months.

You will pay a fee that is a percentage of the balance you transfer—this may have a minimum amount, or it may be capped.

Top tip: Make sure you have a plan for paying off your debt so that you don’t come to the end of the interest-free period without having cleared the balance.

Cards which have long interest-free periods for purchases

If you are looking to buy a large item on your card and pay it off gradually, then you could choose a card with a long interest-free period. The best deals can give you more than two years in which to pay your debt off gradually.

You do need a plan for paying it off, don’t wait until the end of the interest-free period. Work out how much you need to pay in each month in order to clear it gradually. Tesco and Post Office Money both have long interest-free payment terms of 28 and 27 months respectively.

If you’ve got debt you need to clear, and you need your card for future purchases, then you could consider a card which allows you to transfer your outstanding balance and doesn’t charge interest on new purchases. For example, the AA Dual Creditcard Mastercard offers 0% on balance transfers and 0% on new purchases for 26 months.

Top tip: By paying for large items worth over £100 on your credit card you have protection if the goods don’t arrive or are faulty. This can be useful if you are booking a holiday or a one-off expensive item.

Store cards

When you are shopping, a retailer may offer you their store card in return for an initial discount on the goods of 10% or more. They are similar to credit cards in that they are a credit agreement and you should read the small print to check what the terms and conditions say.

Store cards, along with credit cards, appear on your credit score and so it is important to treat them like credit cards and not to miss payments, or your credit rating could be affected.

With store cards, you might get incentives to shop in store, but there may be fewer interest-free days and the APR is likely to be higher. With the Burton MasterCard, for example, you receive two points for every £1 spent at Burton, but the APR on the card is 29.9 %.

Top tip: Think about whether the incentive to take out the store card is really worth it. You are entering into another credit agreement and you will be penalised for late payment.

Cards for building credit

If you have had money problems in the past and you can’t get a new card, or you are not being approved for the best deals, then you could opt for a credit repair card.

It’s important if you do this that you don’t miss payments, you stay within your credit limits and you repay in full each month to avoid paying interest, as the APRs on these cards can be very high.

For example, the Tesco Foundation Clubcard Creditcard MasterCard has an APR of 27.5%, while the Vanquis Bank Black Diamond Credit Card has an APR of 59.9%.

Top tip: If you can show lenders that you can handle credit responsibly, you’ll be starting the process of rebuilding your credit score. For this reason, make sure you only put small amounts on your card which you can afford to pay off in full at the end of each month.

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